Chapter One
Market and Nonmarket Environments
True/False Questions:
1) All companies are successful both in their markets and in the social, political and
legal environment in which they operate.
2) Nike, Microsoft, and Citigroup have encountered problems from both the
competitive market as well as their nonmarket environment.
3) The nonmarket environment is characterized by the social, political, and legal
arrangements that structure interactions outside of, but in conjunction, with
markets and private agreements.
4) Effective management of both the market and the nonmarket environments is a
necessary condition for the successful performance of the firm and all that is
needed for victory over their competitors.
5) Nonmarket issues high on firms’ agendas include environmental protection,
health and safety, regulation and deregulation, intellectual property protection,
international trade policy, antitrust as well as other issues such as human rights.
6) Managers operate in both the market and nonmarket environments.
7) Successful management requires frameworks for analyzing nonmarket issues,
principles for reasoning about them and strategies to address them.
8) Managers rarely participate actively in the implementation of nonmarket
strategies.
9) According to Robert Galvin, former leader at Motorola, companies must help
shape the “rules of the game” in approaching its nonmarket environment.
10) In the case of agricultural biotechnology, the Environmental Protection Agency
(EPA), the Centers for Disease Control, the Office of Homeland Security, the
U.S. Department of Agriculture, the Congress, and the Food and Drug
Administration were the primary government institutions involved.
11) Innovation is one of the four I’s characteristic of the nonmarket environment.
12) One of the issues facing the automobile industry is state CO2 regulations.
13) The Korea-United States free trade agreement of 2007 increased Korea’s tariffs
on automobile imports from the United States.
14) General Motors received a perfect score for 2007 from the Human Rights
Campaign, a gay rights organization.
15) The following are examples of NGOs who form an interest group for the
automobile industry: Center for Auto Safety, Friends of the Earth, Sierra Club,
AARP, Union of Concerned Scientists and the League of Women Voters.
16) The institutions in whose arenas the nonmarket issues for the automobile industry
are addressed include the Presidency, the Environmental Protection Agency, and
the commission of the European Union.
17) Information is often at the heart of strategies for addressing nonmarket issues.
18) Nonmarket issues come from both external forces and the firm’s actions.
19) Scientific discoveries and technological advances usually produce slight change
in both market and nonmarket environments.
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20) The U. S. Supreme Court is not a part of nonmarket issues.
21) There is only one real approach to effectively managing nonmarket issues:
responding to nonmarket issues only when they are strong enough to force the
firm to act.
22) The Hallmark Graduation Cards situation was an example of seeing from the
perspective of others the impact of a new line of cards—in this case, ones that
would feature alcoholic beverages.
23) The first step that a nonmarket issue passes through is issue identification.
24) All nonmarket issues pass through all five phases.
25) The progress of a nonmarket issue is shaped by the actions taken toward that
particular issue.
26) Costs are a major concern for the pharmaceutical industry.
27) The drug companies are only impacted by federal regulations and not by state or
local governments’ actions.
28) Patents provide the most important protection for intellectual property in the
pharmaceutical industry.
29) When a drug company holds a patent in the US, no other country can produce that
drug unless it changes some aspect, such as how it is manufactured, as India did.
30) Google is one company that stays out of harm’s way when dealing with interest
groups over nonmarket issues by doing everything it does within guidelines that
everyone accepts as the best.
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Multiple Choice Questions:
31) Of the following companies, which has had to deal with public concerns on a
continuing basis?
a) Google
b) McDonald’s
c) Nike
d) Toyota
32) All but which one of the following makes public institutions different from
markets.
a) Due process
b) Majority rule
c) Bottom line concerns
d) Collective action
33) Successful management needs which of the following?
a) Frameworks for analyzing nonmarket issues
b) Principles for reasoning about them
c) Approaches for formulating strategies
d) All are correct
34) Firms typically deal with nonmarket issues in ___________to their potential
impacts on _________.
a) Size; success
b) Proportion; performance
c) Finance; human resources
d) The market; bottom line
35) Which of the following was not an environmental pressure brought about because
of the Exxon Valdez oil spill?
a) Liability for damages
b) Increased human resource coordination
c) More stringent regulations
d) Direct public pressure
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36) Which of following is not one of the four I’s of the nonmarket environment:
a) Issues
b) Interests
c) Information
d) Innovation
37) In the agricultural biotechnology industry, which of the following institutions is
not a major player?
a) The Environmental Protection Agency
b) The U. S. Department of Agriculture
c) The Central Intelligence Agency
d) The Congress
38) Which of the following are parts of the framework for understanding the life cycle
of nonmarket issues for the automobile industry?
a) Safety
b) Fuel economy
c) International trade
d) All of the above
39) Bills were introduced in Congress to raise the Corporate Average Fuel Economy
standard by
a) 10%.
b) 20%.
c) 30%.
d) 40%.
40) The Clean Air Act authorized the EPA to grant _____ a waiver allowing it to set
more stringent auto pollution standards than federal standards.
a) California
b) Texas
c) New Jersey
d) Michigan
41) Which of the following represent types of interests?
a) Advocacy groups
b) Special interest
c) Activist groups
d) All of the above
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42) Which of the following is not an organized interest group that directly impacts the
automobile industry?
a) United Auto Workers
b) Trial lawyers
c) American Association of Automobile Manufacturers
d) Oil industry
43) Which of the following is not a primary public institution in the nonmarket
environment?
a) Legislatures
b) The executive branch
c) The World Court
d) Administrative agencies
44) Which of the following is a powerful force for providing information to
officeholders regarding the likely consequences of policy alternative for their
constituents and the public more broadly?
a) United Auto Workers
b) Newspapers from advocates of some position
c) Lobbying
d) None is correct
45) Which one of the following makes up the Administrative and regulatory agencies
arena in which nonmarket issues for the automobile industry are addressed?
a) Congress
b) Environmental Protection Agency
c) European Union
d) All of the above
46) Which auto company was targeted by the environmental groups seeking to
mobilize the public to support greater fuel economy?
a) General Motors
b) DaimlerChrysler
c) Ford
d) Toyota
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47) Which of the following is not a source of nonmarket issues?
a) Moral concerns
b) Institutional change
c) Interest group activity
d) Crash of the stock market
48) What is the following new theory called: ‘under which firms could be held liable
if their stock prices fell significantly when the firms’ projections of future
earnings had been favorable?
a) Fraud on the market
b) Fraud on the nonmarket
d) The common factor
d) Collective deception
49) The example of the Hallmark Graduation Cards is a case of:
a) Looking to the past for inspiration.
b) Being sensitive to the concerns of MADD.
c) Failing to take in the perspectives of interest groups.
d) None of the above.
50) There are a number of ways to anticipate change in the nonmarket environment.
Which of the following is not one of those ways?
a) Limit the extent of the damage once the firm is challenged by an issue
b) Be proactive
c) Be anticipatory
d) Look inward
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Essay and Review Questions:
1) Using the U.S. Automobile Industry, or another industry of your choice, write an
essay explaining the interaction between the market and nonmarket environments.
Use at least five nonmarket issues ranging from safety regulations to global
warming in your analysis.
2) Explain in detail, giving specific examples, the role of management in dealing
with the nonmarket environment. Speculate on how that role has changed in 2008.
3) Using the five stages of the nonmarket life cycle, analyze the automobile industry
over the last three decades with emphasize on General Motors. Using the changes
that you discuss, project into the future—that is, 20 years from now—what the
role of automobiles will be in our society and in the global society.
4) Using the fours I’s—issues, institutions, interests and information—that
characterize the nonmarket environment, develop an analysis of the fast food
industry using McDonald’s as your primary focus.
5) You have been appointed as the vice president in charge of managing nonmarket
issues for your company. Write the job description indicating your
responsibilities, duties, and skills needed. Outline a plan of action including the
several stages of managing the nonmarket issues. Give specific examples
including the emerging issue of environmentalism.